Benefit corporations making an official commitment to causes

Tools

For more than a quarter-century, California-based outdoor apparel company Patagonia has contributed 1 percent of its gross revenues to environmental causes and lived by a corporate mission that compels it to make the best products that do the least harm.

On Jan. 3, company founder Yvon Chouinard was the first in line at the California secretary of state’s office to take advantage of a new state law that allows a company to register as a “benefit corporation,” a designation that commits a company to making “a material positive impact on society or the environment.”

Chouinard, 72, said the establishment of benefit corporations, driven by rising consumer and investor demands to identify socially responsible companies, validates what he sought to do decades ago with Patagonia.

“This benefit corporation allows us a way to ensure the values of my company continue,” he said. “I compare it to a conservation easement on a piece of property: It’s a conservation easement on a company.”

Chouinard was joined by representatives of dozens of companies to file for the designation on the first day it became available. Those that register as benefit corporations will have to file annual reports detailing what they have done to provide public benefits and to submit to third-party evaluation to determine whether they have met that objective.

“There are a lot of conventional businesses that do good things, and we value that,” said Assemblyman Jared Huffman, the Democrat whose legislation created the designation. “But this creates a platinum standard of social responsibility that not only allows it, it requires it. It’s a seal of approval that socially responsible investors and more and more consumers are looking for.”

It is unlikely that any large, publicly held corporations will seek the designation. The law requires a two-thirds vote of approval from all classes of shareholders before such a conversion could take place. It would take a similar supermajority vote to dissolve such a registration.

The bill to create the designation was supported by dozens of small- and mid-size companies, including the shoe manufacturer Birkenstock and business associations such as the Silicon Valley Leadership Group, the Green Chamber of Commerce and the Sustainable Business Council.

But the State Bar of California’s corporations committee opposed it, arguing that its provisions could allow corporations’ directors to subvert their traditional fiduciary responsibility to shareholders.

“This presents the possibility that directors will be able to shop for third-party standards that suit their purposes to the detriment of shareholders,” committee members wrote in a letter to lawmakers.

Huffman says the designation will enable businesses that seek it to focus on a “triple bottom line of people, planet and profits.”

“It’s going to separate out the green-washers,” Chouinard said. “It’s similar to our 1 percent for the planet policy — that’s not 1 percent of profits, it’s 1 percent of sales. It’s a cost of doing business. You have to be really serious about it.”Timm Herdt is a reporter for the Ventura County Star.